Most people are just fine as long as they pay by the due date. But if youre looking to bolster your credit or reduce your interest costs, consider paying earlier.
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Your credit score is one of the most important factors lenders consider when reviewing your credit card or loan applications. Paying your credit card bill on time and keeping your balances low compared to your credit limits are two of the biggest factors affecting your score. While simply paying on time helps, you can optimize exactly when you pay to maximize your score.
How Credit Card Payments Affect Your Credit Score
Credit bureaus like Experian, Equifax and TransUnion calculate your credit score based on the information in your credit report. Two of the biggest factors are:
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Payment history – Whether you pay your bills on time This typically makes up 35% of your score
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Credit utilization – The ratio of credit card balances to total credit limits, usually reported as a percentage. This makes up 30% of your score.
Paying at least the minimum payment by the due date helps your payment history But when your balance gets reported also affects utilization, so timing full payments can help lower this ratio
When Do Credit Card Issuers Report Balances?
The date your balance gets reported depends on your individual credit card’s reporting schedule Issuers generally report your balance once a month, but the specific date varies.
It’s typically on your monthly statement closing date, but could be:
- The day your statement is issued
- The due date
- A set day each month (like the 15th)
- A random day each month
You’ll need to contact your card issuer to learn the exact date they report to the credit bureaus.
How to Use Payment Timing to Lower Your Utilization Ratio
Since credit utilization compares your balance to your limit, a lower balance results in lower utilization and a better score.
To minimize your balance for reporting purposes:
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Pay your balance early – Issuers report your balance at a set time each month. Paying early means a lower balance gets reported.
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Pay before your statement date – This ensures payments made during the month are counted, so your statement balance is lower.
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Pay twice a month – Make one payment early in the billing cycle, then pay the rest by the due date. This keeps your balance lower during the month.
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Pay after the reporting date – If you can’t pay early, waiting until right after the reporting date to pay in full means your lower paid-off balance gets reported the next month.
When Should You Schedule Credit Card Payments?
To optimize your credit score:
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Find your issuer’s reporting date – This is the key date each month to have a low balance.
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Pay early in the billing cycle – Try making a payment soon after getting your statement to lower your balance all month.
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Pay the rest just after the reporting date – Follow up with a second payment right after your balance gets reported to have a low balance reported next month.
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Pay the minimum by the due date – Always make at least the minimum payment by the due date to help your payment history.
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Check your credit report – Make sure low balances are being reported after trying this payment schedule.
Other Ways to Improve Your Credit Score
Along with optimizing your credit card payment timing, some other tips to improve your credit score include:
- Paying all bills on time including utilities and rent
- Keeping credit card balances below 30% of the limit
- Limiting credit inquiries by only applying for new credit when needed
- Having a mix of credit types including credit cards and an installment loan
- Letting your credit history grow longer over time
Focus first on making all payments on time. Then look at payment timing optimization as an additional way to strategically manage your credit card balances so your credit score benefits.
A quick look at the billing cycle
Credit cards operate on a monthly billing cycle, and there are three dates to understand:
- The statement date. Once a month, your card issuer compiles all the activity on your card account and generates your statement. The day this happens is your statement date, also called the closing date. Anything that happens after this date — including activity between the time your statement is created and the time it reaches you in the mail — will go on your next statement.
- When your statement is produced, it will show a statement balance. This is calculated by taking the balance at the beginning of the billing cycle, adding all new charges made during the cycle, and subtracting any payments made during the cycle.
- The due date. This is the date by which you must pay at least the minimum amount due. The due date is usually about three weeks after the statement date. Failure to pay at least the minimum by the due date will result in a late fee.
- The reporting date. This the date on which the card issuer reports your balance to the credit bureaus. Unlike the closing date and due date, the reporting date does not appear on your bill. It could be any time during the month, but its best to assume it will be around the time of your statement closing date.
Paying early could help your credit
One of the primary factors in your credit score is your credit utilization ratio. This is the amount you owe as a percentage of your credit limit. For example, if you have a $5,000 credit limit and your balance is $2,000, your utilization is 40%. Generally, the lower your utilization, the better, and utilization above 30% could be damaging to your credit scores. This is where changing up your credit card payment comes in.
Some people mistakenly believe that 30% utilization is a target — that you should aim to keep your credit card utilization around 30%. This is based on a misunderstanding. The 30% number should be viewed as a cap. Its best to assume that utilization above 30% will have a negative effect on your credit, but the lower, the better.
Credit scores are based on account information reported to the credit bureaus. That information includes your balance and your credit limit, from which the scoring formula determines your utilization ratio. But this information isnt continually updated in real time. Its reported only once a month, on the reporting date defined above.
In the example above, say your payment is due on the 20th of each month, but your issuer reports your balance on the 15th. If your issuer reported a $2,000 balance on the 15th, the credit bureaus would see a 40% utilization — even if you paid your bill in full just days later. Your credit score could end up getting dinged, even though your payment habits are solid.
So consider paying early whenever your credit utilization nears that 30% mark, regardless of when your bill is actually due. By monitoring your utilization and keeping it in check, you’ll be in good shape to get reported to the credit bureaus on any day of the month.
A final note on utilization: Credit utilization “has no memory,” meaning that it doesnt have a lasting effect on credit scores. High utilization one month might knock points off, but if your ratio goes back down the next month, your scores should recover.
WHEN TO PAY CREDIT CARD BILL TO RAISE CREDIT SCORE FASTER!
FAQ
How can I raise my credit score by 100 points in 30 days?
What is the 2/3/4 rule for credit cards?
When to pay back a credit card for the best credit score?
Paying your entire credit card balance every month keeps credit utilization down, which can help to improve your credit score.Aug 5, 2024
Is it better to pay a credit card bill early or on due date?
Avoid Late Fees: Paying before the due date ensures you won’t incur late fees, which can also affect your credit score. In summary, it’s generally best to pay your credit card bill before the due date to avoid interest and penalties and to maintain a healthy credit score.